Water & Sewer Utilities
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Industry Overview
The US commercial water and sewer utilities industry includes about 5,000 companies with combined annual revenue of $7 billion. Large companies include American Water, Aqua America, and California Water Service. The industry is fairly concentrated: the 50 largest companies account for 65 percent of industry revenue. The commercial industry is small compared to the $55 billion spent annually on water and sewer services by regional and local governments that operate their own systems.
Competitive Landscape
Demand depends on commercial and residential water needs, which are partly related to population growth and partly to the level of economic activity. The profitability of individual companies depends on efficiency of operations, because prices are fixed by public utility commissions (PUCs). Large companies have economies of scale in operations and the ability to raise capital for infrastructure improvements. Small companies can compete successfully through superior engineering or by serving smaller local markets. The industry is capital-intensive: average annual revenue per employee at the large companies is $250,000.
Products, Operations & Technology
Major services are operating water supply systems and operating sewage removal systems. Water services account for 85 percent of industry revenue, sewer services for 15 percent. The operations of small or large water and sewer systems and commercial or municipal utilities are identical. Water and sewer operations are local monopolies, mainly because of the large infrastructure of reservoirs, pipes, and treatment facilities needed. Competition exists only in determining who operates a system. Commercial companies may own a local system, or operate a system on behalf of a local government ("contract operations"), or may own parts of a system, such as water wells or a reservoir. California Water Services, for example, operates the water system of Hawthorne, California, under a 15-year lease.
A water system consists of a water source, a system of storage reservoirs, a water treatment facility, and a pipe distribution system. The water source may be surface (lakes or rivers) or ground water (springs and wells). Washington, DC, for example, uses about 180 million gallons of water per day from the Potomac River. While water from lakes or rivers is sometimes free, companies must often pay wholesale fees for water owned by private owners or local or regional public water authorities. Typical long-term wholesale water prices in California are $500 to $600 per acre foot. Water from wells is often cheaper than surface water.
To ensure that water is available during periods of peak use (which often coincide with periods of low accumulation, like the summer months), utilities may operate various types of reservoirs, including tanks, artificial lakes, and covered ground reservoirs. Water treatment consists of various steps to remove contaminants. A coagulant like alum (aluminum sulfate) may be added to the water to attract and clump suspended particles, which settle to the bottom in sedimentation basins. Water is then filtered through sand and gravel beds, and disinfected with chlorine to kill bacteria and viruses. Fluoride is usually added (as hydrofluorosilicic acid) to help prevent tooth decay, and lime (calcium hydroxide) is added to adjust the water's acidity and prevent corrosion of distribution pipes. Treated water runs through meters before flowing through distribution pipes to final customers. Water is periodically tested for quality at various stages in the system.
A sewer system works much the same as a water system, but in reverse. Wastewater is collected through a system of pipes from residential and industrial customers and rain sewers, and is processed in a treatment plant before being discharged. Primary treatment consists of settling out solids from the waste stream and separating the sludge from the water. In secondary treatment, oxygen is added to encourage the growth of bacteria that consume much of the rest of the waste. The remaining water is then disinfected and discharged into rivers, lakes, or the ocean. Sludge is treated with heat to kill bacteria and may be dried for use as fertilizer or placed in landfills.
The operation of both water and sewer systems is highly automated and requires mainly monitoring. The average local water or sewer utility has fewer than a dozen employees. Maintenance and capital costs are often higher than operating costs, because of the large network of pipes, valves, pumps, reservoirs, and treatment facilities that make up a complete system. Pipe maintenance or replacement is especially expensive, as pipes are usually located under roadways.
Computer systems have become important to some water or sewer systems to monitor flow and quality at many points of the large networks of pipes and valves. Many older systems operate with only rudimentary monitoring.
